Observations focused on the problems of an underdeveloped country, Venezuela, with some serendipity about the world (orchids, techs, science, investments, politics) at large. A famous Venezuelan, Juan Pablo Perez Alfonzo, referred to oil as the devil's excrement. For countries, easy wealth appears indeed to be the sure path to failure. Venezuela might be a clear example of that.

Archive for August 30th, 2009

The future of one of the world’s biggest oil auctions is in jeopardy as Venezuela’s socialist government and oil companies remain at loggerheads over terms to develop a key oil field.

Repeated delays in the bidding for rights to exploit the Orinoco Belt – which was postponed for a third time at the end of last month – reflect investor concerns about political risk, onerous financing costs and the profitability of the projects. Lower oil prices and a stuttering global economy only add to the problem.

Chinese, Russian, Indian and Brazilian state oil companies are competing alongside oil majors such as Shell, BP, Chevron, Total, Eni and Statoil for access to the Orinoco’s Carabobo block, which could require collective investment of between $30bn and $50bn (€34.5bn, £30.6bn) in three projects together potentially producing up to 1.2m barrels per day.

“There is a high level of interest. The Orinoco Belt is just too large to be ignored, with no geological risk but huge potential,” said Rodolfo Guzmán, a management consultant at Arthur D. Little in Houston. Low production costs and a lack of alternatives elsewhere in the world add to the Orinoco’s attractions.

But in spite of this being the first opportunity to invest in Venezuela’s vast oil reserves in more than a decade, enthusiasm has been tempered by a long list of concerns.

At the top of the list were fears about the unstable political climate in Venezuela and the unpredictability of President Hugo Chávez as he championed his socialist revolution.

“Security is still the big X-factor,” said Pietro Pitts, the Caracas-based editor of Latin Petroleum Magazine. “Scarcely a month goes by without the government taking over another private company,” he said, highlighting the expropriation of the assets of more than 70 oil service companies this year.

Worries about the sanctity of contracts were deepened by the fact that tax rates for oil companies have been increased four times since 2004, while PDVSA, the Venezuelan state oil company, has been negligent at paying dividends to partners in joint ventures.

Such concerns explain why companies were insisting on having the right to settle contract disputes in international courts, particularly after ExxonMobil and ConocoPhilips saw fit to bring billion-dollar claims against Venezuela after Mr Chávez went on a nationalisation spree in 2007.

But PDVSA is believed to be reluctant to comply, arguing that this would compromise national sovereignty – even though international arbitration clauses were included in contracts signed with investors from Russia, a close ally of Venezuela.

Another serious obstacle relates to the stiff financial terms, particularly with tough conditions in international credit markets. In spite of companies being allowed at most a 40 per cent share in each of the projects up for auction, with PDVSA maintaining 60 per cent, they are being asked to fork out 100 per cent of the financing.

The fiscal terms are equally hard to swallow, with 33 per cent royalty rates and a newly introduced windfall tax generating deep disquiet.

On top of that the projects require high start-up costs, in particular because of the need for complex and expensive refineries known as upgraders necessary to process the tar-like “extra-heavy” oil found in the Orinoco.

“As a publicly traded company we need a minimum return on our investment,” said the local head of one of the oil majors bidding, questioning whether this would be feasible under the current terms and market conditions.

As Mr Guzmán put it: “For many companies here it’s going to be very hard to convince their bosses at home to put a serious offer on the table.” Given that PDVSA will have operational control of the new projects, the argument will be even harder to make, with many companies dissatisfied with their current joint ventures with the Venezuelan group.

Such attitudes have generated speculation that the bid round could attract very few serious offers and might even need to be suspended.

Others argued that even if private companies shy away, national oil groups from countries such as China and Russia remain committed.

A representative in Caracas of one of the state oil companies bidding said in spite of the high costs involved, national energy security is the overriding consideration.

“The project may require serious investment, yes, but given that there is no exploration risk and that this could be the last project of its size left in the world, we can’t afford not to get involved.”

Protesting in the streets of Venezuela is, from now on, synonymous with crime.The Venezuelan Attorney General Luisa Ortega, has announced it will open proceedings against all those citizens who “protest for any reason” and that in hher opinion, only seek to “destabilize the constitutionally elected Government.“I wish that those who rise up in hostility against the constituted Government , should know what are now consequences,” Ortega said, while she moderated her owm radio program “in line with the Public Ministry”, which airs every Friday at a state broadcaster . Her opinion is that (these) behaviors fit perfectly into the crime of civil rebellion “that under Venezuelan law is punishable by 12 to 24 years in prison.

The aim is to establish that marches are civil rebellion

AIn early July, also through her program, Luisa Ortega also proposed that Parliament approve a controversial “crimes against media law” to punish the media for disseminating information that “incited hatred” or generated “anxiety” among the population.

The first “rebels” at the discretion of the prosecutor, are already behind bars.The prefect of the city and 11 workers from the office of Mayor of Caracas, governed by opposiont’s Antonio Ledezma, were arrested Wednesday for participating in the march which took place on Saturday 22 August against the recently adopted Education Bill, which removes some autonomy from universities and establishes a system to establish the “new consciousness” at socialist schools.. All were accused of “obstructing public roads”, “incitement to crime” against police and injuries.According to the prosecutor, this protest, which involved thousands of Venezuelans, was convened by the parties of opposition and civil society organizations to generate “a climate of violence” and “create a scenario similar to the 11 and 12 April 2002, when there was the coup in Venezuela that removed Hugo Chávez from power for 48 hours.

The statements by the Prosecutor has been nothing but another sign in the marked tendency of the government of Hugo Chávez for the criminalization of protest. Since 2007, at least 300 students have been arrested for participating in demonstrations against the closure of private TV channel Radio Caracas Television and against the constitutional reform proposed by Chavez to establish the indefinite re-election since then, 256 of them have to present themselves regulraly in fron of a judge regularly and are banned from leaving the country.

Both President Chavez and Prosecutor Diaz have criticized the union of journalists, who is also ready to protest against the growing threats to freedom of expression in Venezuela. Two weeks ago, 12 reporters were assaulted with sticks and stones by a group of Chavez’ supporters while distributing leaflets in downtown Caracas, against one of the articles of the new Education Bill which provides for the immediate closure of media to disseminate content generate “terror” in children.

Chavez justified the beating, saying that this protest was a “provocation” against the people, while the prosecutor said that the journalists involved in such acts cease to be journalists and become politicians.The person responsible for this aggression, only one worker was arrested Avila state TV channel, was released a week later.